Larry Swedroe: Size Factor Not Dead

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Random Walker
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Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Mon Jul 23, 2018 9:29 am

http://www.etf.com/sections/index-inves ... nopaging=1

Larry wrote on size factor recently, but this article is nonetheless very worthwhile. Size has underperformed in the US over last seven years, but has actually outperformed internationally. Larry shows a table showing that market, size, and value can all underperform for extended periods. Unfortunately, he doesn’t display a row showing the potential effectiveness of diversifying across those 3 factors.
It appears to me from Larry’s summary of the data that the outperformance of small over the long term may well depend heavily on short term bursts of outperformance, emphasizing the importance of sticking to a plan. At the end of the article, Larry reviews several risk characteristics of small companies that explain why a premium should persist. Risk cannot be arbitraged away. Publication, widespread knowledge of, and financialization of a risk based factor may decrease a premium, but should not be expected to eliminate it. Market beta certainly has not disappeared.
In this article, Larry several times makes the point that factors, including market beta, can be negative for long periods of time. The value of diversifying across these uncorrelated factors is substantial. I recommend people look at the tables in Chapter 9 of Larry’s Factor Book to get a sense of the power of diversifying across factors. This is especially important in the years immediately preceding retirement and early retirement.

Dave

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Re: Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Mon Jul 23, 2018 5:56 pm

Tilting a portfolio towards size and value is a big easy step towards a more efficient portfolio. Generally speaking, size is weakly correlated with market beta, value uncorrelated with market beta, and size and value uncorrelated with each other. The performance of size in isolation is only one aspect of its potential benefit to a portfolio. It also provides a diversification benefit by how it mixes with the other factors in a portfolio. Moreover, I believe the other factors themselves are more pronounced in the small cap realm than for large caps.

Dave

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Re: Larry Swedroe: Size Factor Not Dead

Post by BigJohn » Mon Jul 23, 2018 6:06 pm

So, full disclosure, I’m not a factor investor, just too risky and uncertain for my SWAN needs. However, this “short term burst” idea triggered a couple of questions.... How long do you wait for a burst? What if the factor has been significantly (not totally) arbitraged away by lower cost and higher availability? If that’s the case, historical bursts should provide no solace as future predictions. You could be waiting a long time for a much smaller burst.

The history does not predict the future line is always true but never more so than with all these factor analysis, at least in my opinion, which along with $4 will buy you coffee at Starbucks :beer

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Re: Larry Swedroe: Size Factor Not Dead

Post by golfCaddy » Mon Jul 23, 2018 6:37 pm


Random Walker
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Re: Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Mon Jul 23, 2018 8:01 pm

golfCaddy wrote:
Mon Jul 23, 2018 6:37 pm
Is there anything new that hasn't been covered previously?

viewtopic.php?f=10&t=250080
viewtopic.php?f=10&t=251440
viewtopic.php?f=10&t=251761
viewtopic.php?f=10&t=239785
I’d go ahead and read the article anyways. I find with Larry’s articles, even when I think I’ve read enough on the subject before, there’s always something of good added value to me: updated data, different way of looking at things, extra detail, additional support to concept I learned elsewhere, etc.

Dave

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Re: Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Mon Jul 23, 2018 8:07 pm

BigJohn wrote:
Mon Jul 23, 2018 6:06 pm
So, full disclosure, I’m not a factor investor, just too risky and uncertain for my SWAN needs. However, this “short term burst” idea triggered a couple of questions.... How long do you wait for a burst? What if the factor has been significantly (not totally) arbitraged away by lower cost and higher availability? If that’s the case, historical bursts should provide no solace as future predictions. You could be waiting a long time for a much smaller burst.
I would say the answer is you wait your entire investing career. I think one should only develop a factorized plan if it is well thought out up front and the investor intends to stick to it for the duration. Part of thinking it out well is considering the possibility that the premium has been financialized and taken a haircut. This is strong reason to diversify across factors! Check out the tables in Chapter 9 Larry’s factor book. Good news is that when a portfolio diversified across factors underperforms, it’s not by much. When it outperforms, it’s significant.

Dave

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Re: Larry Swedroe: Size Factor Not Dead

Post by snarlyjack » Mon Jul 23, 2018 8:14 pm

Random Walker,

I've turned into a tilter.
Large Cap. Value, Medium Cap. Value, Small Cap. Value.
I' am a value investor (only I called it dividend investing) but
it's actually value investing...

Thanks for the articles...I'll read them...

sj

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Re: Larry Swedroe: Size Factor Not Dead

Post by BigJohn » Mon Jul 23, 2018 9:06 pm

Random Walker wrote:
Mon Jul 23, 2018 8:07 pm
I would say the answer is you wait your entire investing career. I think one should only develop a factorized plan if it is well thought out up front and the investor intends to stick to it for the duration. Part of thinking it out well is considering the possibility that the premium has been financialized and taken a haircut. This is strong reason to diversify across factors! Check out the tables in Chapter 9 Larry’s factor book. Good news is that when a portfolio diversified across factors underperforms, it’s not by much. When it outperforms, it’s significant.
One question and one comment.

The question... If all the factors have taken a haircut, is diversifying really any protection? I'm not arguing against the base case benefits of diversification, just that it doesn't seem it will do much to mitigate the haircut if all factors are suffering from the same impact.

The comment... I think the best you can say is that when it outperforms it was significant. If all factors are or will suffer decline from low cost and high availability, the future could be quite different from the past. These issues are why I decided to forego factor investing.

That said, I hope you get the incremental return you are expecting :beer

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Re: Larry Swedroe: Size Factor Not Dead

Post by tarheel » Mon Jul 23, 2018 9:27 pm

I wonder what Larry thinks about AQR's work lately claiming that the size factor is actually dead.

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Re: Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Mon Jul 23, 2018 10:56 pm

tarheel wrote:
Mon Jul 23, 2018 9:27 pm
I wonder what Larry thinks about AQR's work lately claiming that the size factor is actually dead.
This is at limits of my knowledge, but in Larry’s factor book Chapter 2 he references a 2015 study done by AQR guys titled “Size Matters If You Control Your Junk”. There is a strong negative relation between quality and size. The realm of small stocks is more diluted by low quality companies. If control for the quality factor, there is a significant size premium. Small quality beats large quality and small junk beats large junk. Looking at size effect alone in isolation has the size effect somewhat diluted by the quality factor: more low quality in small realm.

Also, remember all factors are defined as long-short portfolios. All the factors except size are defined as top 30% - bottom 30%. Size has traditionally been defined as top 50% - bottom 50%. One can really use any definition one chooses for a factor. 50/50, 30/30, 20/20, 10/10. If one uses tighter definitions of the size factor like the 30/30 definition used for other factors or say 20/20, then I believe the effect is more pronounced and persistent. Larry describes this issue in a separate appendix on the size effect in the same factor book.

Dave

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Re: Larry Swedroe: Size Factor Not Dead

Post by whodidntante » Tue Jul 24, 2018 12:24 am

As long as you understand you're buying a risk, small works. And most of the risk comes from beta anyway, which most of us do not eliminate.

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JoMoney
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Re: Larry Swedroe: Size Factor Not Dead

Post by JoMoney » Tue Jul 24, 2018 2:52 am

https://youtu.be/-SB4gB3DEhA
It's not dead... nah nah, it's resting have a look.
Remarkable "risk factor" size is, look at the historical premium!
It's resting.
There look it moved!
It's stunned.
Probably needs a filter for "value".
The size premium, prefers kicking it back.... and then VOOM!
It's not dead, it needs a filter for "profitability".
Maybe we ought to replace it.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Tue Jul 24, 2018 5:11 am

whodidntante wrote:
Tue Jul 24, 2018 12:24 am
As long as you understand you're buying a risk, small works. And most of the risk comes from beta anyway, which most of us do not eliminate.
One of the keys of Fama French findings is the fact that size and value are unique independent risk factors from market beta.

Dave

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Re: Larry Swedroe: Size Factor Not Dead

Post by tarheel » Tue Jul 24, 2018 6:26 am

Random Walker wrote:
Mon Jul 23, 2018 10:56 pm
tarheel wrote:
Mon Jul 23, 2018 9:27 pm
I wonder what Larry thinks about AQR's work lately claiming that the size factor is actually dead.
This is at limits of my knowledge, but in Larry’s factor book Chapter 2 he references a 2015 study done by AQR guys titled “Size Matters If You Control Your Junk”. There is a strong negative relation between quality and size. The realm of small stocks is more diluted by low quality companies. If control for the quality factor, there is a significant size premium. Small quality beats large quality and small junk beats large junk. Looking at size effect alone in isolation has the size effect somewhat diluted by the quality factor: more low quality in small realm.

Also, remember all factors are defined as long-short portfolios. All the factors except size are defined as top 30% - bottom 30%. Size has traditionally been defined as top 50% - bottom 50%. One can really use any definition one chooses for a factor. 50/50, 30/30, 20/20, 10/10. If one uses tighter definitions of the size factor like the 30/30 definition used for other factors or say 20/20, then I believe the effect is more pronounced and persistent. Larry describes this issue in a separate appendix on the size effect in the same factor book.

Dave
Nope, it's not the QMJ paper. This is brand new work. I haven't read the paper yet so I can't comment on it, but here is a quote taken from the latest "Cliff's Perspective" (available on AQR's website):

"The size effect paper is the easier one to discuss in a short blog. There isn’t one. That is, there isn’t a pure size effect (there is a paper). In fact, there never was a size effect. Among other issues, the data used to discover it was flawed (though no fault of the author, that was the data back then) in a way that favored small stocks. Using more accurate modern data there simply is no additional premium for small stocks beyond that which comes from their having a larger market beta (and if you want to squint really hard to find some alpha in the really small stocks you run into big liquidity issues as described in the paper). I’ll let you read it yourself but I had to spoil the end for you. There’s a lot of other interesting stuff anyway besides the headline bad news. We know that it’s likely a sobering thought to many that the Ur‑anomaly, the one that’s been used to practically reorganize the entire money management industry, just isn’t there. But, as the man said, it just ain’t so."

Would be really interested to see how Larry feels about that paper.

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Re: Larry Swedroe: Size Factor Not Dead

Post by deltaneutral83 » Tue Jul 24, 2018 7:43 am

tarheel wrote:
Tue Jul 24, 2018 6:26 am
Would be really interested to see how Larry feels about that paper.
In that radio interview with Jason Parker LS mentioned he was over half in SCV in his personal portfolio. Not sure if it was half of his equities or half overall but nonetheless he certainly believes in the size factor.

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Re: Larry Swedroe: Size Factor Not Dead

Post by Call_Me_Op » Tue Jul 24, 2018 8:03 am

I don't see how the size factor can ever die when clearly, small companies are riskier than large companies. Why would anyone invest in riskier companies if there were no return premium?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Larry Swedroe: Size Factor Not Dead

Post by jhfenton » Tue Jul 24, 2018 8:26 am

JoMoney wrote:
Tue Jul 24, 2018 2:52 am
https://youtu.be/-SB4gB3DEhA
It's not dead... nah nah, it's resting have a look.
Remarkable "risk factor" size is, look at the historical premium!
It's resting.
There look it moved!
It's stunned.
Probably needs a filter for "value".
The size premium, prefers kicking it back.... and then VOOM!
It's not dead, it needs a filter for "profitability".
Maybe we ought to replace it.
A+ for effective repurposing of my favorite MP skit. :beer Bravo.

I still tilt small, always have, always will. It has served me very well.

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Re: Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Tue Jul 24, 2018 8:43 am

Obviously, I’m an amateur. But intuitively I think there are just too many logical risk stories that fit with small. Larry enumerates several in the article. Most of those risk stories are associated with doing especially badly in bad times. That alone creates some uniqueness from market beta I think.

I read that Asness piece in the past, I’ll give it another read and see if it penetrates this time.

Dave

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Re: Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Tue Jul 24, 2018 8:46 am

jhfenton wrote:
Tue Jul 24, 2018 8:26 am
JoMoney wrote:
Tue Jul 24, 2018 2:52 am
https://youtu.be/-SB4gB3DEhA
It's not dead... nah nah, it's resting have a look.
Remarkable "risk factor" size is, look at the historical premium!
It's resting.
There look it moved!
It's stunned.
Probably needs a filter for "value".
The size premium, prefers kicking it back.... and then VOOM!
It's not dead, it needs a filter for "profitability".
Maybe we ought to replace it.
A+ for effective repurposing of my favorite MP skit. :beer Bravo.

I still tilt small, always have, always will. It has served me very well.
Darn! I love MP and didn’t even get it! Must have been too focused being defensive about factors :-)

Dave

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Re: Larry Swedroe: Size Factor Not Dead

Post by thx1138 » Tue Jul 24, 2018 9:41 am

Call_Me_Op wrote:
Tue Jul 24, 2018 8:03 am
I don't see how the size factor can ever die when clearly, small companies are riskier than large companies. Why would anyone invest in riskier companies if there were no return premium?
That could be (and in fact based on the most recent research is) just more beta and not actually a separate uncorrelated factor. The original Fama-French small factor now appears to be an erroneous artifact of the data set used in the original FF research. See the aforementioned AQR paper.

Now if small is just more beta and not actually uncorrelated with beta that means buying small is equivalent to buying the entire market on leverage. Since there are real costs and risks to using leverage that still means small is useful if you want to take on more risk than the market beta.

So people are getting a return on premium for investing in riskier companies - they get more beta for it. They aren't (apparently according to the newest research) actually getting exposure to risk any different from market beta though. They are just getting more of that beta risk and more return to go along with that.

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Re: Larry Swedroe: Size Factor Not Dead

Post by nedsaid » Tue Jul 24, 2018 11:00 am

I don't know, people around here are wondering why they should invest in International Stocks? You see threads here that wonder why they should invest in bonds? Rising interest rates and all of that. So pretty much that leaves them with a one-fund portfolio, the US Total Stock Market Index. But we now know we shouldn't bother with Value, which of course, is dead. Small is dead. So that leaves only one choice. Large Growth. So to all the performance chasers out there that leaves a Large Growth Index. I mean, everything else is dead. What the heck do we need diversification for anyway? Diversification is dead too. :wink:
A fool and his money are good for business.

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Re: Larry Swedroe: Size Factor Not Dead

Post by whodidntante » Tue Jul 24, 2018 2:01 pm

Random Walker wrote:
Tue Jul 24, 2018 5:11 am
whodidntante wrote:
Tue Jul 24, 2018 12:24 am
As long as you understand you're buying a risk, small works. And most of the risk comes from beta anyway, which most of us do not eliminate.
One of the keys of Fama French findings is the fact that size and value are unique independent risk factors from market beta.

Dave
Yep, I realize that the small is a distinct factor from beta. But a long only small fund will have a heaping helping of beta to go with the small.

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Re: Larry Swedroe: Size Factor Not Dead

Post by vineviz » Tue Jul 24, 2018 2:35 pm

whodidntante wrote:
Tue Jul 24, 2018 2:01 pm
Random Walker wrote:
Tue Jul 24, 2018 5:11 am
whodidntante wrote:
Tue Jul 24, 2018 12:24 am
As long as you understand you're buying a risk, small works. And most of the risk comes from beta anyway, which most of us do not eliminate.
One of the keys of Fama French findings is the fact that size and value are unique independent risk factors from market beta.

Dave
Yep, I realize that the small is a distinct factor from beta. But a long only small fund will have a heaping helping of beta to go with the small.
Depends on what you mean by heaping, I guess. Invesco Russell 2000 Pure Value ETF (PXSV), Invesco FTSE RAFI US 1500 Small-Mid ETF (PRFZ), SPDR SSGA US Small Cap Low Volatil ETF (SMLV), and iShares S&P Mid-Cap 400 Value ETF (IJJ) all have betas of less than .95 with SmB loadings of over .42.

https://www.portfoliovisualizer.com/fac ... ssion=true
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Re: Larry Swedroe: Size Factor Not Dead

Post by Vashezzo » Tue Jul 24, 2018 5:43 pm

tarheel wrote:
Tue Jul 24, 2018 6:26 am
Random Walker wrote:
Mon Jul 23, 2018 10:56 pm
tarheel wrote:
Mon Jul 23, 2018 9:27 pm
I wonder what Larry thinks about AQR's work lately claiming that the size factor is actually dead.
This is at limits of my knowledge, but in Larry’s factor book Chapter 2 he references a 2015 study done by AQR guys titled “Size Matters If You Control Your Junk”. There is a strong negative relation between quality and size. The realm of small stocks is more diluted by low quality companies. If control for the quality factor, there is a significant size premium. Small quality beats large quality and small junk beats large junk. Looking at size effect alone in isolation has the size effect somewhat diluted by the quality factor: more low quality in small realm.

Also, remember all factors are defined as long-short portfolios. All the factors except size are defined as top 30% - bottom 30%. Size has traditionally been defined as top 50% - bottom 50%. One can really use any definition one chooses for a factor. 50/50, 30/30, 20/20, 10/10. If one uses tighter definitions of the size factor like the 30/30 definition used for other factors or say 20/20, then I believe the effect is more pronounced and persistent. Larry describes this issue in a separate appendix on the size effect in the same factor book.

Dave
Nope, it's not the QMJ paper. This is brand new work. I haven't read the paper yet so I can't comment on it, but here is a quote taken from the latest "Cliff's Perspective" (available on AQR's website):

"The size effect paper is the easier one to discuss in a short blog. There isn’t one. That is, there isn’t a pure size effect (there is a paper). In fact, there never was a size effect. Among other issues, the data used to discover it was flawed (though no fault of the author, that was the data back then) in a way that favored small stocks. Using more accurate modern data there simply is no additional premium for small stocks beyond that which comes from their having a larger market beta (and if you want to squint really hard to find some alpha in the really small stocks you run into big liquidity issues as described in the paper). I’ll let you read it yourself but I had to spoil the end for you. There’s a lot of other interesting stuff anyway besides the headline bad news. We know that it’s likely a sobering thought to many that the Ur‑anomaly, the one that’s been used to practically reorganize the entire money management industry, just isn’t there. But, as the man said, it just ain’t so."

Would be really interested to see how Larry feels about that paper.
I went and read the new paper, from what I can tell it's essentially a summary of already known criticisms of the size factor (low t-stat, "January effect", concentrated in micro-caps, etc). It doesn't contradict the older paper at all, and even includes a summary of its results.

Some choice quotes:

"Here [after including RMW and CMA], the story changes considerably. Suddenly, the alpha of SMB is positive and strongly significant with a t-statistic of 3.02. Moreover, and even more interestingly, the SMB alphas from the non-price based measures of size are also now significantly positive, with t-statistics ranging from just under 2.0 to 2.4. In other words, the size effect seems to have been made substantially stronger by including the two new Fama and French factors RMW and CMA. Digging into this result, it is the relation between SMB and RMW in particular that is driving this positive result for size."

"Regardless of the quality metric used, metrics that vary substantially both qualitatively and in terms of measured correlation, we find a much stronger and more stable size effect when controlling for a firm’s quality."

"Firm size is highly confounded with firm quality, which distorts the relation between size and expected returns. Large firms tend to be high quality firms, while small firms tend to be “junky.” Since high quality stocks outperform junk stocks on average, the basic size effect is fighting a strong quality effect. Going long small stocks and short large stocks, a size-based strategy is long a potential size premium but also short a quality premium, which both understates the actual size effect and introduces additional variation from the quality factor."

Here's the picture with the stats for those so inclined
Image

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Re: Larry Swedroe: Size Factor Not Dead

Post by golfCaddy » Tue Jul 24, 2018 7:06 pm

This is at limits of my knowledge, but in Larry’s factor book Chapter 2 he references a 2015 study done by AQR guys titled “Size Matters If You Control Your Junk”. There is a strong negative relation between quality and size. The realm of small stocks is more diluted by low quality companies. If control for the quality factor, there is a significant size premium. Small quality beats large quality and small junk beats large junk. Looking at size effect alone in isolation has the size effect somewhat diluted by the quality factor: more low quality in small realm.

Also, remember all factors are defined as long-short portfolios. All the factors except size are defined as top 30% - bottom 30%. Size has traditionally been defined as top 50% - bottom 50%. One can really use any definition one chooses for a factor. 50/50, 30/30, 20/20, 10/10. If one uses tighter definitions of the size factor like the 30/30 definition used for other factors or say 20/20, then I believe the effect is more pronounced and persistent. Larry describes this issue in a separate appendix on the size effect in the same factor book.

Dave
The data's not as simple as that. Look at Fama's 5x5 size-op portfolios, the smallest junk beat the largest junk and the smallest high profitability beat the largest high profitability. However, 2nd quintiles by size beat both the smallest and the largest quintiles after controlling for profitability.

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Re: Larry Swedroe: Size Factor Not Dead

Post by knpstr » Tue Jul 24, 2018 7:24 pm

Call_Me_Op wrote:
Tue Jul 24, 2018 8:03 am
I don't see how the size factor can ever die when clearly, small companies are riskier than large companies. Why would anyone invest in riskier companies if there were no return premium?
Return premium? Isn't it just return potential?
What is a more likely to become a 10-bagger, a 500M market cap company or a 500B market cap company?
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Tue Jul 24, 2018 7:50 pm

Vashezzo wrote:
Tue Jul 24, 2018 5:43 pm
tarheel wrote:
Tue Jul 24, 2018 6:26 am
Random Walker wrote:
Mon Jul 23, 2018 10:56 pm
tarheel wrote:
Mon Jul 23, 2018 9:27 pm
I wonder what Larry thinks about AQR's work lately claiming that the size factor is actually dead.
This is at limits of my knowledge, but in Larry’s factor book Chapter 2 he references a 2015 study done by AQR guys titled “Size Matters If You Control Your Junk”. There is a strong negative relation between quality and size. The realm of small stocks is more diluted by low quality companies. If control for the quality factor, there is a significant size premium. Small quality beats large quality and small junk beats large junk. Looking at size effect alone in isolation has the size effect somewhat diluted by the quality factor: more low quality in small realm.

Also, remember all factors are defined as long-short portfolios. All the factors except size are defined as top 30% - bottom 30%. Size has traditionally been defined as top 50% - bottom 50%. One can really use any definition one chooses for a factor. 50/50, 30/30, 20/20, 10/10. If one uses tighter definitions of the size factor like the 30/30 definition used for other factors or say 20/20, then I believe the effect is more pronounced and persistent. Larry describes this issue in a separate appendix on the size effect in the same factor book.

Dave
Nope, it's not the QMJ paper. This is brand new work. I haven't read the paper yet so I can't comment on it, but here is a quote taken from the latest "Cliff's Perspective" (available on AQR's website):

"The size effect paper is the easier one to discuss in a short blog. There isn’t one. That is, there isn’t a pure size effect (there is a paper). In fact, there never was a size effect. Among other issues, the data used to discover it was flawed (though no fault of the author, that was the data back then) in a way that favored small stocks. Using more accurate modern data there simply is no additional premium for small stocks beyond that which comes from their having a larger market beta (and if you want to squint really hard to find some alpha in the really small stocks you run into big liquidity issues as described in the paper). I’ll let you read it yourself but I had to spoil the end for you. There’s a lot of other interesting stuff anyway besides the headline bad news. We know that it’s likely a sobering thought to many that the Ur‑anomaly, the one that’s been used to practically reorganize the entire money management industry, just isn’t there. But, as the man said, it just ain’t so."

Would be really interested to see how Larry feels about that paper.
I went and read the new paper, from what I can tell it's essentially a summary of already known criticisms of the size factor (low t-stat, "January effect", concentrated in micro-caps, etc). It doesn't contradict the older paper at all, and even includes a summary of its results.

Some choice quotes:

"Here [after including RMW and CMA], the story changes considerably. Suddenly, the alpha of SMB is positive and strongly significant with a t-statistic of 3.02. Moreover, and even more interestingly, the SMB alphas from the non-price based measures of size are also now significantly positive, with t-statistics ranging from just under 2.0 to 2.4. In other words, the size effect seems to have been made substantially stronger by including the two new Fama and French factors RMW and CMA. Digging into this result, it is the relation between SMB and RMW in particular that is driving this positive result for size."

"Regardless of the quality metric used, metrics that vary substantially both qualitatively and in terms of measured correlation, we find a much stronger and more stable size effect when controlling for a firm’s quality."

"Firm size is highly confounded with firm quality, which distorts the relation between size and expected returns. Large firms tend to be high quality firms, while small firms tend to be “junky.” Since high quality stocks outperform junk stocks on average, the basic size effect is fighting a strong quality effect. Going long small stocks and short large stocks, a size-based strategy is long a potential size premium but also short a quality premium, which both understates the actual size effect and introduces additional variation from the quality factor."

Here's the picture with the stats for those so inclined
Image
Vashezzo,
Great explanation. Thanks for cleaning up the mess I started :-)

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Re: Larry Swedroe: Size Factor Not Dead

Post by azanon » Wed Jul 25, 2018 6:50 pm

I don't even see much point in the post, to be completely honest. One to check for myself, i pitted Vanguard Index 500 vs. Vanguard Extended Market Index for past 7 years, and it was 13.2% vs. 12.3% CAGR, respectively. Ok, sure that validates that small caps under-performed, but by just 0.9%, and it was still 12.3% CAGR. Extend that back by just 3 more years, and small caps take the lead once again.

I guess my thought is, if you're considering factoring, and you're going to get alarmed by a 0.9% under-performance over just 7 years, please consider not factoring in the first place, would be my recommendation.

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Re: Larry Swedroe: Size Factor Not Dead

Post by fennewaldaj » Wed Jul 25, 2018 9:51 pm

Vashezzo wrote:
Tue Jul 24, 2018 5:43 pm
tarheel wrote:
Tue Jul 24, 2018 6:26 am
Random Walker wrote:
Mon Jul 23, 2018 10:56 pm
tarheel wrote:
Mon Jul 23, 2018 9:27 pm
I wonder what Larry thinks about AQR's work lately claiming that the size factor is actually dead.
This is at limits of my knowledge, but in Larry’s factor book Chapter 2 he references a 2015 study done by AQR guys titled “Size Matters If You Control Your Junk”. There is a strong negative relation between quality and size. The realm of small stocks is more diluted by low quality companies. If control for the quality factor, there is a significant size premium. Small quality beats large quality and small junk beats large junk. Looking at size effect alone in isolation has the size effect somewhat diluted by the quality factor: more low quality in small realm.

Also, remember all factors are defined as long-short portfolios. All the factors except size are defined as top 30% - bottom 30%. Size has traditionally been defined as top 50% - bottom 50%. One can really use any definition one chooses for a factor. 50/50, 30/30, 20/20, 10/10. If one uses tighter definitions of the size factor like the 30/30 definition used for other factors or say 20/20, then I believe the effect is more pronounced and persistent. Larry describes this issue in a separate appendix on the size effect in the same factor book.

Dave
Nope, it's not the QMJ paper. This is brand new work. I haven't read the paper yet so I can't comment on it, but here is a quote taken from the latest "Cliff's Perspective" (available on AQR's website):

"The size effect paper is the easier one to discuss in a short blog. There isn’t one. That is, there isn’t a pure size effect (there is a paper). In fact, there never was a size effect. Among other issues, the data used to discover it was flawed (though no fault of the author, that was the data back then) in a way that favored small stocks. Using more accurate modern data there simply is no additional premium for small stocks beyond that which comes from their having a larger market beta (and if you want to squint really hard to find some alpha in the really small stocks you run into big liquidity issues as described in the paper). I’ll let you read it yourself but I had to spoil the end for you. There’s a lot of other interesting stuff anyway besides the headline bad news. We know that it’s likely a sobering thought to many that the Ur‑anomaly, the one that’s been used to practically reorganize the entire money management industry, just isn’t there. But, as the man said, it just ain’t so."

Would be really interested to see how Larry feels about that paper.
I went and read the new paper, from what I can tell it's essentially a summary of already known criticisms of the size factor (low t-stat, "January effect", concentrated in micro-caps, etc). It doesn't contradict the older paper at all, and even includes a summary of its results.

Some choice quotes:

"Here [after including RMW and CMA], the story changes considerably. Suddenly, the alpha of SMB is positive and strongly significant with a t-statistic of 3.02. Moreover, and even more interestingly, the SMB alphas from the non-price based measures of size are also now significantly positive, with t-statistics ranging from just under 2.0 to 2.4. In other words, the size effect seems to have been made substantially stronger by including the two new Fama and French factors RMW and CMA. Digging into this result, it is the relation between SMB and RMW in particular that is driving this positive result for size."

"Regardless of the quality metric used, metrics that vary substantially both qualitatively and in terms of measured correlation, we find a much stronger and more stable size effect when controlling for a firm’s quality."

"Firm size is highly confounded with firm quality, which distorts the relation between size and expected returns. Large firms tend to be high quality firms, while small firms tend to be “junky.” Since high quality stocks outperform junk stocks on average, the basic size effect is fighting a strong quality effect. Going long small stocks and short large stocks, a size-based strategy is long a potential size premium but also short a quality premium, which both understates the actual size effect and introduces additional variation from the quality factor."

Here's the picture with the stats for those so inclined
Image
I wonder if the quality issue is why midcaps seem to do so well. They are still fairly small companies but the midcap indexes don't have all that much junk relative to the small cap indexes.

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Re: Larry Swedroe: Size Factor Not Dead

Post by pascalwager » Wed Jul 25, 2018 11:10 pm

I've held DFA US Microcap (DFSCX) (deciles 9 and 10) since July 1995, so I did a check tonight on M* charts. Ten thousand dollars grew to $113,087 compared to $78,070 for the S&P 500 (large cap). Of course, my portfolio was re-balanced quarterly, so my actual returns were smaller. But one could be tempted to imagine a small cap premium considering this period of 23 years.

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Re: Larry Swedroe: Size Factor Not Dead

Post by Jerdna » Wed Jul 25, 2018 11:52 pm

Random Walker wrote:
Mon Jul 23, 2018 9:29 am
Size has underperformed in the US over last seven years
I don't see any underperformance in small cap vs large cap over last 7 years.

IVV (2011-2017) 13.70% p.a. - large cap
IJR (2011-2017) 13.72% p.a. - small cap

Another thing to mention is that choosing 2011-2017 is cherry picking, if you choose 2010-2017 IJR had overperformed: 15.26% vs IVV 13.87%.
JoMoney wrote:
Tue Jul 24, 2018 2:52 am
https://youtu.be/-SB4gB3DEhA
It's not dead... nah nah, it's resting have a look.
Remarkable "risk factor" size is, look at the historical premium!
It's resting.
There look it moved!
It's stunned.
Probably needs a filter for "value".
The size premium, prefers kicking it back.... and then VOOM!
It's not dead, it needs a filter for "profitability".
Maybe we ought to replace it.
Why would you replace something which is working fine - IJR is clear winner vs IVV.

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Re: Larry Swedroe: Size Factor Not Dead

Post by Call_Me_Op » Thu Jul 26, 2018 7:18 am

thx1138 wrote:
Tue Jul 24, 2018 9:41 am
Call_Me_Op wrote:
Tue Jul 24, 2018 8:03 am
I don't see how the size factor can ever die when clearly, small companies are riskier than large companies. Why would anyone invest in riskier companies if there were no return premium?
That could be (and in fact based on the most recent research is) just more beta and not actually a separate uncorrelated factor. The original Fama-French small factor now appears to be an erroneous artifact of the data set used in the original FF research. See the aforementioned AQR paper.

Now if small is just more beta and not actually uncorrelated with beta that means buying small is equivalent to buying the entire market on leverage. Since there are real costs and risks to using leverage that still means small is useful if you want to take on more risk than the market beta.

So people are getting a return on premium for investing in riskier companies - they get more beta for it. They aren't (apparently according to the newest research) actually getting exposure to risk any different from market beta though. They are just getting more of that beta risk and more return to go along with that.
That's an interesting point. Note also that maximum draw-down is comparable for small-cap, so it is not exactly just leverage. In addition, small-cap and large-cap do not have a correlation of 1.0, so perhaps one can consider the advantage effectively be some combination of leverage and an independent factor.
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Re: Larry Swedroe: Size Factor Not Dead

Post by Call_Me_Op » Thu Jul 26, 2018 7:20 am

knpstr wrote:
Tue Jul 24, 2018 7:24 pm
Call_Me_Op wrote:
Tue Jul 24, 2018 8:03 am
I don't see how the size factor can ever die when clearly, small companies are riskier than large companies. Why would anyone invest in riskier companies if there were no return premium?
Return premium? Isn't it just return potential?
What is a more likely to become a 10-bagger, a 500M market cap company or a 500B market cap company?
The premium is always expected - never guaranteed.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: Larry Swedroe: Size Factor Not Dead

Post by danieljquirk » Thu Jul 26, 2018 11:58 am

I think behavioral risk is real for the vast majority of investors, even professionals. Realistically, most people will not wait out 7 years or more of under-performance for a factor to reverse course and outperform. Market-cap weighting is intuitive, economically reasonable, the most widely utilized form of investing by far, and will never underperform the market. These features allow people to easily stay the course with this approach. It is far more important to stay the course and consistently invest/contribute dollars if an investor wants to build wealth or grow a retirement nest egg over many years. This is far more important than trying to squeeze out a few extra basis points of returns on various factor investing schemes. But because people are apparently bored or have nothing better to do, a small subset of investors love to continue discussing factors. I guess it's better than shooting up heroin or playing mindless video-games. :happy I also think many professional advisors have an incentive to make investing seem more complicated than it needs to be. The three-fund portfolio is the best approach for 99% of us. (A strong case can also be made for a single fund solution--an age-appropriate Vanguard target-date retirement fund, which is effectively a common sense three-fund portfolio that gradually and automatically gets more conservative with age.)

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Re: Larry Swedroe: Size Factor Not Dead

Post by Vashezzo » Fri Jul 27, 2018 12:09 am

fennewaldaj wrote:
Wed Jul 25, 2018 9:51 pm
I wonder if the quality issue is why midcaps seem to do so well. They are still fairly small companies but the midcap indexes don't have all that much junk relative to the small cap indexes.
I've looked in to that a bit, I don't think it's the case. No significant quality load from what I can see.

Image
(source)

I do however see a difference in the CRSP indicies vs the S&P ones when looking at small/mid cap value. Notice the higher size/quality loads on the S&P funds (size should be obvious, and I assume the profitability screen for entry to the S&P indices is where the quality load is coming from).
Image
(source)

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Re: Larry Swedroe: Size Factor Not Dead

Post by JoMoney » Fri Jul 27, 2018 9:01 am

fennewaldaj wrote:
Wed Jul 25, 2018 9:51 pm
...
I wonder if the quality issue is why midcaps seem to do so well. They are still fairly small companies but the midcap indexes don't have all that much junk relative to the small cap indexes.
The difference in returns between mid-caps and and large or the broader market has been negligible for the past 12-13 years, actually mid-caps performed worse on a 'risk adjusted' basis / Sharpe ratio.

The bulk of mid-caps performance difference occurred over the 1999-2003 period.
Bear in mind that over the six years 1994 through 1999 the S&P 400 returned 18.16% annualized to the S&P 500's 23.55% annualized.

Not all 'mid-cap' indices are the same, and that does show up in the returns. I suspect that the S&P's screen for profitability, as well as for seasoning of new-issues before an IPO is eligible for inclusion likely made a difference.

Image
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Re: Larry Swedroe: Size Factor Not Dead

Post by nedsaid » Fri Jul 27, 2018 9:15 am

JoMoney wrote:
Fri Jul 27, 2018 9:01 am

Not all 'mid-cap' indices are the same, and that does show up in the returns. I suspect that the S&P's screen for profitability, as well as for seasoning of new-issues before an IPO is eligible for inclusion likely made a difference.
We are reduced now to "Index picking" rather than "Stock picking." Another way of saying it is that if at first you try and don't succeed, blame the indexes. As you say, the index you choose seems to make the difference.
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Re: Larry Swedroe: Size Factor Not Dead

Post by JoMoney » Fri Jul 27, 2018 9:23 am

nedsaid wrote:
Fri Jul 27, 2018 9:15 am
JoMoney wrote:
Fri Jul 27, 2018 9:01 am

Not all 'mid-cap' indices are the same, and that does show up in the returns. I suspect that the S&P's screen for profitability, as well as for seasoning of new-issues before an IPO is eligible for inclusion likely made a difference.
We are reduced now to "Index picking" rather than "Stock picking." Another way of saying it is that if at first you try and don't succeed, blame the indexes. As you say, the index you choose seems to make the difference.
It did when you were picking a narrow sector/segment like mid-caps. Much less when looking at the difference in broad-market indices.
When you look at a segment that makes up a small % of the market these things can be finicky and not much different than stock picking.
The entire segment that's called "small value" is probably about the same weight as Apple in the S&P 500.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Larry Swedroe: Size Factor Not Dead

Post by nedsaid » Fri Jul 27, 2018 9:27 am

JoMoney wrote:
Fri Jul 27, 2018 9:23 am
nedsaid wrote:
Fri Jul 27, 2018 9:15 am
JoMoney wrote:
Fri Jul 27, 2018 9:01 am

Not all 'mid-cap' indices are the same, and that does show up in the returns. I suspect that the S&P's screen for profitability, as well as for seasoning of new-issues before an IPO is eligible for inclusion likely made a difference.
We are reduced now to "Index picking" rather than "Stock picking." Another way of saying it is that if at first you try and don't succeed, blame the indexes. As you say, the index you choose seems to make the difference.
It did when you were picking a narrow sector/segment like mid-caps. Much less when looking at the difference in broad-market indices.
When you look at a segment that makes up a small % of the market these things can be finicky and not much different than stock picking.
I am in agreement in your comments about broad vs. narrow indexes. If one is tilting, the narrower segments of the market will be over weighted in the portfolio hence the search for the best vehicles to represent those segments. I remember all the discussions about the Vanguard Small-Cap Value Index and whether or not it had enough Small and Value factor loading.
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Re: Larry Swedroe: Size Factor Not Dead

Post by nedsaid » Sun Jul 29, 2018 4:43 pm

pascalwager wrote:
Wed Jul 25, 2018 11:10 pm
I've held DFA US Microcap (DFSCX) (deciles 9 and 10) since July 1995, so I did a check tonight on M* charts. Ten thousand dollars grew to $113,087 compared to $78,070 for the S&P 500 (large cap). Of course, my portfolio was re-balanced quarterly, so my actual returns were smaller. But one could be tempted to imagine a small cap premium considering this period of 23 years.
Well, we are not supposed to believe what our eyes see. Count me in as a believer in the Size factor.
A fool and his money are good for business.

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Re: Larry Swedroe: Size Factor Not Dead

Post by david1082b » Sun Jul 29, 2018 9:20 pm

nedsaid wrote:
Sun Jul 29, 2018 4:43 pm
pascalwager wrote:
Wed Jul 25, 2018 11:10 pm
I've held DFA US Microcap (DFSCX) (deciles 9 and 10) since July 1995, so I did a check tonight on M* charts. Ten thousand dollars grew to $113,087 compared to $78,070 for the S&P 500 (large cap). Of course, my portfolio was re-balanced quarterly, so my actual returns were smaller. But one could be tempted to imagine a small cap premium considering this period of 23 years.
Well, we are not supposed to believe what our eyes see. Count me in as a believer in the Size factor.
To pick a different start-date, August 9th 1983 to now saw S&P 500 fund VFINX beat DFSCX http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Different start-dates can be used to prove different things of course, and undoubtedly DFSCX outperformed in total return since the fund's start in 1981 http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

We can see a negative premium for DFSCX from November 1983 to March 2009, showing how long a premium can disappear http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

The DFA advisor fee is a variable that is different for different investors. Vanguard may have had fees to buy its funds in the 1980s but doesn't have any now when you go through its platform. PortfolioVisualiser only goes back to 1985, but comparing the two funds since Jan 1985 shows DFSCX had around 0.54% more annualized return: https://www.portfoliovisualizer.com/bac ... ion2_2=100

A DFA advisor fee that was higher than a Vanguard fee would have eaten into that outperformance. With no fees from Vanguard on its platform now, any DFA fund outperformance will need to be bigger than the advisor fee in future to get anything extra.

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Re: Larry Swedroe: Size Factor Not Dead

Post by nedsaid » Sun Jul 29, 2018 9:35 pm

david1082b wrote:
Sun Jul 29, 2018 9:20 pm

The DFA advisor fee is a variable that is different for different investors. Vanguard may have had fees to buy its funds in the 1980s but doesn't have any now when you go through its platform. PortfolioVisualiser only goes back to 1985, but comparing the two funds since Jan 1985 shows DFSCX had around 0.54% more annualized return: https://www.portfoliovisualizer.com/backtest-portfolio?

A DFA advisor fee that was higher than a Vanguard fee would have eaten into that outperformance. With no fees from Vanguard on its platform now, any DFA fund outperformance will need to be bigger than the advisor fee in future to get anything extra.
The belief in factors is not without evidence but the evidence is controversial. Many people talking about backtesting. Certainly, the time period you pick makes a big difference.

The advisor fees associated with DFA is a big reason that I didn't invest with Merriman. They wanted 1% Assets Under Management and the recommended DFA funds had an average expense ratio of 0.34%. This gave me pause. My expense ratio for the retirement portfolio is 0.48%, which is high enough.
A fool and his money are good for business.

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Re: Larry Swedroe: Size Factor Not Dead

Post by Random Walker » Sun Jul 29, 2018 10:57 pm

david1082b wrote:
Sun Jul 29, 2018 9:20 pm

A DFA advisor fee that was higher than a Vanguard fee would have eaten into that outperformance. With no fees from Vanguard on its platform now, any DFA fund outperformance will need to be bigger than the advisor fee in future to get anything extra.
I don’t think it’s quite that simple. We need to look at the portfolio as a whole, and the performance of a single fund in isolation does not tell the whole story. Although you definitely describe an excellent starting point! If the DFA fund yields a more efficient portfolio, there may well be less volatility drag on the compounded return of the portfolio. How an investment effects a portfolio depends on returns, correlations, volatility, and costs.

Dave

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Re: Larry Swedroe: Size Factor Not Dead

Post by pascalwager » Mon Jul 30, 2018 8:21 pm

nedsaid wrote:
Sun Jul 29, 2018 9:35 pm
david1082b wrote:
Sun Jul 29, 2018 9:20 pm

The DFA advisor fee is a variable that is different for different investors. Vanguard may have had fees to buy its funds in the 1980s but doesn't have any now when you go through its platform. PortfolioVisualiser only goes back to 1985, but comparing the two funds since Jan 1985 shows DFSCX had around 0.54% more annualized return: https://www.portfoliovisualizer.com/backtest-portfolio?

A DFA advisor fee that was higher than a Vanguard fee would have eaten into that outperformance. With no fees from Vanguard on its platform now, any DFA fund outperformance will need to be bigger than the advisor fee in future to get anything extra.
The belief in factors is not without evidence but the evidence is controversial. Many people talking about backtesting. Certainly, the time period you pick makes a big difference.

The advisor fees associated with DFA is a big reason that I didn't invest with Merriman. They wanted 1% Assets Under Management and the recommended DFA funds had an average expense ratio of 0.34%. This gave me pause. My expense ratio for the retirement portfolio is 0.48%, which is high enough.
My initial DFA advisor fees were 2.00% in 1995 and gradually shrank down to 1.2% in 2011 (when I took over portfolio management to eliminate the fees). But when you begin to live off your portfolio in retirement, the fees begin to climb again.

Seems absurd now, but the expected return for my portfolio was 11% in the beginning.

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Re: Larry Swedroe: Size Factor Not Dead

Post by nedsaid » Tue Jul 31, 2018 11:21 am

pascalwager wrote:
Mon Jul 30, 2018 8:21 pm
nedsaid wrote:
Sun Jul 29, 2018 9:35 pm
david1082b wrote:
Sun Jul 29, 2018 9:20 pm

The DFA advisor fee is a variable that is different for different investors. Vanguard may have had fees to buy its funds in the 1980s but doesn't have any now when you go through its platform. PortfolioVisualiser only goes back to 1985, but comparing the two funds since Jan 1985 shows DFSCX had around 0.54% more annualized return: https://www.portfoliovisualizer.com/backtest-portfolio?

A DFA advisor fee that was higher than a Vanguard fee would have eaten into that outperformance. With no fees from Vanguard on its platform now, any DFA fund outperformance will need to be bigger than the advisor fee in future to get anything extra.
The belief in factors is not without evidence but the evidence is controversial. Many people talking about backtesting. Certainly, the time period you pick makes a big difference.

The advisor fees associated with DFA is a big reason that I didn't invest with Merriman. They wanted 1% Assets Under Management and the recommended DFA funds had an average expense ratio of 0.34%. This gave me pause. My expense ratio for the retirement portfolio is 0.48%, which is high enough.
My initial DFA advisor fees were 2.00% in 1995 and gradually shrank down to 1.2% in 2011 (when I took over portfolio management to eliminate the fees). But when you begin to live off your portfolio in retirement, the fees begin to climb again.

Seems absurd now, but the expected return for my portfolio was 11% in the beginning.
I would be interested to know when you started with the DFA Advisor. My suspicion is that it was at a time when both stocks and bonds were much cheaper than today. I remember when I bought zero coupon treasuries at 8% back in the late 1980's. Those were the days.
A fool and his money are good for business.

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Re: Larry Swedroe: Size Factor Not Dead

Post by pascalwager » Thu Aug 02, 2018 2:42 pm

nedsaid wrote:
Tue Jul 31, 2018 11:21 am
pascalwager wrote:
Mon Jul 30, 2018 8:21 pm
nedsaid wrote:
Sun Jul 29, 2018 9:35 pm
david1082b wrote:
Sun Jul 29, 2018 9:20 pm

The DFA advisor fee is a variable that is different for different investors. Vanguard may have had fees to buy its funds in the 1980s but doesn't have any now when you go through its platform. PortfolioVisualiser only goes back to 1985, but comparing the two funds since Jan 1985 shows DFSCX had around 0.54% more annualized return: https://www.portfoliovisualizer.com/backtest-portfolio?

A DFA advisor fee that was higher than a Vanguard fee would have eaten into that outperformance. With no fees from Vanguard on its platform now, any DFA fund outperformance will need to be bigger than the advisor fee in future to get anything extra.
The belief in factors is not without evidence but the evidence is controversial. Many people talking about backtesting. Certainly, the time period you pick makes a big difference.

The advisor fees associated with DFA is a big reason that I didn't invest with Merriman. They wanted 1% Assets Under Management and the recommended DFA funds had an average expense ratio of 0.34%. This gave me pause. My expense ratio for the retirement portfolio is 0.48%, which is high enough.
My initial DFA advisor fees were 2.00% in 1995 and gradually shrank down to 1.2% in 2011 (when I took over portfolio management to eliminate the fees). But when you begin to live off your portfolio in retirement, the fees begin to climb again.

Seems absurd now, but the expected return for my portfolio was 11% in the beginning.
I would be interested to know when you started with the DFA Advisor. My suspicion is that it was at a time when both stocks and bonds were much cheaper than today. I remember when I bought zero coupon treasuries at 8% back in the late 1980's. Those were the days.
I started with the DFA advisor in mid-July 1995. They were the first advisor to use DFA funds. In fact, they convinced DFA to retail their funds instead of selling only to institutional investors. The three advisor-owners published two books on factor investing. So, I became familiar with the three-factor model before learning the meaning of the term "market" or S&P 500 index.

I don't know the relative value of stocks and bonds then, but I recall a feeling of muted confidence and optimism compared to today. As I wrote previously, the expected return on my 85/15 portfolio was 11%–-and 13% for a 100% stocks portfolio.

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Re: Larry Swedroe: Size Factor Not Dead

Post by nedsaid » Thu Aug 02, 2018 3:34 pm

pascalwager wrote:
Thu Aug 02, 2018 2:42 pm
nedsaid wrote:
Tue Jul 31, 2018 11:21 am

I would be interested to know when you started with the DFA Advisor. My suspicion is that it was at a time when both stocks and bonds were much cheaper than today. I remember when I bought zero coupon treasuries at 8% back in the late 1980's. Those were the days.
I started with the DFA advisor in mid-July 1995. They were the first advisor to use DFA funds. In fact, they convinced DFA to retail their funds instead of selling only to institutional investors. The three advisor-owners published two books on factor investing. So, I became familiar with the three-factor model before learning the meaning of the term "market" or S&P 500 index.

I don't know the relative value of stocks and bonds then, but I recall a feeling of muted confidence and optimism compared to today. As I wrote previously, the expected return on my 85/15 portfolio was 11%–-and 13% for a 100% stocks portfolio.
The mid-1990's were a pretty heady time. We hadn't seen anything yet, 1996-1999 were the best years of the 1984-1999 bull market and it seemed like sky was the limit. Hard to compare now to then, we weren't yet in irrational exuberance in 1995 but I do remember a lot of optimism. I see optimism today but people in ordinary conversation are not talking about the stock market. No one quitting their jobs to become day traders.

Future expected returns are probably projected to be about half of what was projected for your portfolio back in 1995. I guess we will see what happens.

I didn't know that DFA was Institutional only in its earlier days.
A fool and his money are good for business.

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